You have land and are choosing not to utilize it (rent it out or sell it) in the belief that you will get a higher price for that same land tomorrow.
Today, your tax liability is tiny when you do this. This incentivizes landlords in hot markets to keep their land off the market, thus making the market hotter, this further incentivizing speculation, etc.
This is why you see empty storefronts or empty lots in incredibly expensive areas. The owner can sustain the cash flow loss today in exchange for higher prices tomorrow.
LVT would mean your tax burden is the same (moderate to high) whether you rent it out or do not rent it out, thus making it infeasible to sit and wait for a higher price tomorrow. This would bring more units onto the market and more efficient uses, thus bringing prices down.
Since LVT is often proposed as replacing other forms of taxation (or at least dramatically reducing them), the cost of actually building a dwelling or storefront also goes down — thus further incentivizing non-speculative behavior.
Indeed! A few points just so people who haven’t heard of LVT before don’t walk with easily addressed misconceptions:
1. The government today assesses land value. It also must assess the value of far, far more nebulous things that can be hidden, transfigured, created/destroyed, or moved offshore. Yes more importance would be tied to this singular assessment, but this assessment is singularly easy to assess!
2. The price/value itself would be set by the market. The assessment of that value, of course, would be by the government and you are correct there is risk of differential here (though mitigated by point 1)
3. Lastly, because land cannot be created, destroyed, or moved, a tax upon it is uniquely unable to either incur inefficiencies (deadweight loss) or to be passed onto tenants/consumers. This is contrast to every other form of taxation, which incur inefficiencies then get passed onto the consumer in the form of price increases anyway.
> This is why you see empty storefronts or empty lots in incredibly expensive areas.
The reason why the speculator leaves the storefronts or lots empty is that putting them to use right now would prevent them from being used for something even more valuable in the future. If they could use the property for something productive now without impacting the expected future use they would happily do so and collect the extra income. Coercing them into putting the property to use immediately, via LVT or zoning rules or whatever, is thus inefficient and economically destructive. The speculation serves a useful purpose.
Wrong. The "productive" activity for land holders under system without LVT is preventing others from utilizing it. Without LVT you only achieve massive resource underutilization and favoritism of the first who grabbed it.
If the landowners aren't using the land, and they're not letting anyone else use it, then no one is making any money–least of all the landowners, who also have an ongoing opportunity cost due to the capital they've tied up in the land itself. That's hardly productive. Or rationale. There is no profit in leaving land idle when it could be put to productive use without impairing its future earning potential. Are you claiming that landowners would maliciously prevent the land from being used, at their own expense? Please be specific.
Yes there are landlords who hold land out of use because they know there are or will be others who will eventually want to use it.
There is very clear profit in buying land for cheap and sitting on it until somebody wants it. Land doesn't depreciate unlike buildings. Building something on that land is often more risky for landowners whose business is pure speculation because at sell time the building will have to be torn down by the next user.
This is consistently evident in real world. It might not be in economic theories and textbooks which are designed only for utopia-land.
It really sounds like you're agreeing with me in every sense that matters. You just fail to see the downside of the alternative without speculation where someone buys the land for cheap, does something correspondingly low-value with it without regard for its future potential, and then when somebody else finally does want it for a more valuable use we either can't use it that way or have to tear down what the first user built (which is doubly wasteful when it could have simply been built somewhere else in the first place) and start over.
I honestly don't understand your point much. But let me add this about speculation and land holding for the next user.
There is zero need for a private owner to hold it. The land will not disappear, it will always be there. Government on behalf of the community can hold it just as well without the incentive of preventing others of using it.
This makes land different from other goods where if there were no speculators (dealers who hold inventory) the market would dry up (stocks, bonds, used cars).
Land is in this regard more similar to concert tickets. There are speculators who acquire this limited commodity but their profit stems from preventing others getting them and selling it to them at a later date at incresead price.
Society looks at this type of business as highly unethical.
> The land will not disappear, it will always be there.
The land might not disappear, but it can very easily be rendered unfit for purpose through misuse or neglect.
Let's put this in concrete terms. Say we have a plot of land which is suitable for various kinds of development. We have a prospective buyer who is looking to build a house. They like this property the best but there are several other suitable options; let's say they'd be willing to pay $25k, but not $30k, to acquire this land as the site for their home. The home will be worth perhaps $250k (not counting the land itself) with an expected lifetime of at least a century with proper maintenance, and effectively can't be moved once build.
Development trends in this area suggest that in perhaps ten years' time there will be demand for some sort of commercial development—office space, retail, services, whatever. They aren't here yet, but if trends continue then 10 years from now someone would be willing to pay up to $100k for this piece of land. (The other sites that the first buyer was considering for their home would not be suitable for this purpose.) However, they're not going to pay $250k extra for a house that they're just going to have to tear down to make room, even if the owner of that house were willing to uproot their family and move somewhere else.
Without speculation there is no reason not to sell the property to the first buyer for $25-30k and let them build their house. However, this represents an economic loss of at least $70k ten years later (the $100k value to the future developer minus the $30k maximum value to the residential buyer) since the land is no longer available at that time for the commercial development. To make it available at that point would cost around $250k just to offset the value of the house, plus the cost of tearing it down, never mind the hassle of moving the family.
With speculation, there is someone bidding say $75k for the property and the residential buyer picks one of the other available properties instead—perhaps not their first choice, but a good enough alternative. The speculator limits the use of the property to such things as can easily be removed in ten years to make way for the anticipated commercial use. Perhaps that means leaving it empty, though it could also be turned into a park, short-lease retail space or transient housing, something that could easily be cleared up to make room when the future demand materializes. Then, if all goes well and they predicted the market correctly, they sell the vacant property for $100k and make their well-deserved profit.
Of course, it may not all go well, in which case they'll be forced to take a loss. Speculation only pays when you make the right predictions.
> Government on behalf of the community can hold it just as well without the incentive of preventing others of using it.
If government correctly anticipates that the land will have more value in the future, they can act like a private owner and buy the land and hold it until that use materializes. Where this breaks down is that the government isn't risking their own capital in the process; if they are wrong and the value of the land decreases instead it's not the government that pays the price, but rather the public. Which means they have less incentive than a private owner to accurately predict the future value of the property, and are more likely to lose money on average. When they do lose they don't go bankrupt; they just take more money from the public via taxes. This is merely an inefficient, socialized, and corruption-prone version of private speculation fueled by public funds.
Today, your tax liability is tiny when you do this. This incentivizes landlords in hot markets to keep their land off the market, thus making the market hotter, this further incentivizing speculation, etc.
This is why you see empty storefronts or empty lots in incredibly expensive areas. The owner can sustain the cash flow loss today in exchange for higher prices tomorrow.
LVT would mean your tax burden is the same (moderate to high) whether you rent it out or do not rent it out, thus making it infeasible to sit and wait for a higher price tomorrow. This would bring more units onto the market and more efficient uses, thus bringing prices down.
Since LVT is often proposed as replacing other forms of taxation (or at least dramatically reducing them), the cost of actually building a dwelling or storefront also goes down — thus further incentivizing non-speculative behavior.